The passive income potential offered by a Stocks and Shares ISA can be significant from a long-term perspective.

Investing the ISA across a range of proven blue-chip income shares potentially means dividends piling up over the years – something that can happen even faster if they are reinvested to earn even more dividends.

Such reinvestment is known as compounding and can be a powerful way for someone to try and build the value of their ISA. Even without compounding though, an ISA can still provide substantial passive income streams.

Setting a goal

For example, say someone has £20k in their ISA and wants to earn £1,000 a year from dividends. That would require an average dividend yield of 5%. At the moment, the FTSE 100 index of leading British shares yields 3.1%. So a 5% target may seem ambitious.

Remember though, that that 5% is an average of the yields of the 100 different shares contained in the blue-chip index. Some are lower, some are higher.

I therefore think it is possible to aim for a 5% yield from an ISA in today’s market by buying a diversified selection of FTSE 100 shares.

Thinking for the future

Before doing that, it makes sense to try and ensure you have the right ISA for your needs. There are lots of different options available and varying fees can eat into passive income streams. So it seems smart to spend some time choosing the right Stocks and Shares ISA.

It is also important to think not just about current yield but also what may happen. No dividend is ever guaranteed to last.

That explains why I previously mentioned diversification rather than simply putting the full £20k into your favourite dividend share idea.

It also means it makes sense to do some research, like looking at a company’s accounts and assessing their business outlook, before buying shares.

A 5.6% yield and decades of yearly dividend growth

One share I think is worth considering at the moment for its passive income potential is Dunhill maker British American Tobacco (LSE: BATS).

Some investors shun so-called ‘sin stocks’ like tobacco companies on ethical grounds. But for those who are open to them, they can be lucrative.

Take British American as an example. It currently offers a 5.6% yield. The FTSE 100 company also has an impressive record of having raised its dividend per share annually for decades. It aims to keep doing so, though whether it can achieve that will depend on how the business performs.

After all, cigarette sales volumes are falling and that poses a risk both to revenues and profits, despite the pricing power the company’s premium brand portfolio gives it.

But with a proven business model, global distribution footprint, still sizeable (though shrinking) cigarette business and growing non-cigarette business, I see this as a share to consider.

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Christopher Ruane does not hold any positions in the companies mentioned.